Education Loan

If higher education costs are the hurdles you need to tackle, then education loans will be the best and most reliable means. Education loans are also useful especially for those who wish to gain better education from a renowned foreign university where the fees and costs are still higher. In India many of the nationalized and private sector banks offer education loans to the eligible students. Education loans have always been highly desirable as they help everyone realize their dreams. Be it doing an MBA or MBBS, or be it any other professional courses of your choice, with the help of these loans you can realize your dreams. When you have the chance, why not take a loan and pursue the course of your choice!

Government of India in consultation with Reserve Bank of India (RBI) and Indian Banker’s Association (IBA) has framed a Comprehensive Educational Loan Scheme to ensure that no deserving student in the Country is deprived of higher education for want of finances. The new scheme covers all type of courses including professional courses in India and abroad. A large number of banks have already launched educational loan schemes.

Student Eligibility: She/he should be an Indian National having secured admission to a higher education course in recognized institutions in India or abroad through Entrance Test/ Merit Based Selection process after completion of HSC (10 plus 2 or equivalent).

Courses eligible: (a) Studies in India: (Indicative list) Approved courses leading to graduate/ post graduate degree and PG diplomas conducted by recognized colleges/ universities recognized by UGC/ Govt./ AICTE/AIBMS/ICMR etc. Courses like ICWA, CA, CFA etc.

Courses conducted by IIMs, IITs, IISc, XLRI. NIFT, NID etc. Regular Degree/ Diploma courses like Aeronautical, pilot training, shipping etc., approved by Director General of Civil Aviation/Shipping, if the course is pursued in India. Sanction of loans to applicants who got admission under “Management Quota” is to be considered outside the purview of IBA educational loan scheme.

(b) Studies Abroad:-

Graduation: Job oriented professional/ Technical courses offered by reputed universities. Post graduation: MCA, MBA, MS, etc. Courses conducted by CIMA- London, CPA in USA etc Degree/diploma courses like aeronautical, pilot training, shipping etc., provided these are recognized by competent regulatory bodies in India/abroad for the purpose of employment in India/ abroad.

  • Fee payable to college/ school/ hostel
  • Examination/Library/Laboratory fee, Travel expenses/ passage money for studies abroad, insurance premium for student borrower, if applicable.
  • Caution deposit, Building fund/ refundable deposit supported by Institution bills/ receipts, Purchase of books/equipments/ instruments/ uniforms, Purchase of computer at reasonable cost, if required for completion of the course
  • Any other expenses required to complete the course — like study tours, project work, thesis, etc. There will be ceiling on maximum amount payable in many of the items above from bank to bank.

Need based finance is to be worked out as per expenses eligible as above with applicable margin and within the ceilings.
However higher quantum of loan can be considered on case-to-case basis (e.g. IIMs, ISB etc.)
Loans in excess of Rs.10 lakhs qualify for interest subsidy under
Central Sector Interest Subsidy Scheme for loan amount up to Rs.10 lakhs only. Studies in India: Rs.15.00 lakhs Studies Abroad: Rs.25.00 lakhs

Up to Rs.4.00 lakhs: NIL

Above Rs.4.00 lakhs: Studies in India: 5% Studies abroad: 15%

Scholarship/ assistantship to be treated/ included in margin.

Margin may be brought- in on year-to-year basis as and when disbursements are made on a pro-rata basis.

Up to Rs.4.00 lakhs: Parents to be Joint borrower(s). No security.

Above Rs. 4 lakhs and upto Rs.7.50 lakhs: Besides the parent(s) executing the documents as Joint borrower(s), collateral security in the form of suitable third party guarantee is to be obtained.

Above Rs.7.50 lakhs: Parent(s) to be joint borrower(s) together with tangible collateral security, the market value of which is not less than the loan value, acceptable to bank, along with the assignment of future income of the student for payment of installments.

The loan documents should be executed by the student and the parent/guardian as joint borrower.

The security can be in the form of land/ building/ Govt. Securities/ Public Sector Bonds/ Units of UTI, NSC, KVP, life policy, gold, shares/ mutual fund units / debentures, bank deposit in the name of student/ parent/ guardian/ any other third party or any other tangible security acceptable to the bank with suitable margin.

Wherever the land/building is already mortgaged, the unencumbered portion can be taken as security on second charge basis provided it covers the required loan amount.

Varies from bank to bank slightly .Generally it will be around 3 to 4% above base rate. Some banks give concessions’ for prompt repayment and for girl students

Servicing of interest during study period and the moratorium period i.e. till’ commencement of repayment is optional for students. Accrued interest to be added to the principal amount borrowed while fixing EMI for repayment.

Appraisal / Sanction / Disbursement

Normally, sanction/rejection has to be communicated within 15 days of receipt duly completed application with supporting documents. In the normal course, while appraising the loan, the future income prospects of the student only will be looked into. Normally, loan application is to be accepted by the branch nearest to the residence of parents. The loan is to be disbursed in stages as per the requirement/ demand directly to the Institutions/ Vendors of equipments/ instruments to the extent possible.

Holiday/Moratorium period Course period + 1 year or 6 months after getting job, whichever is earlier. Repayment of the loan is to be fixed in equated monthly installments for periods as under:

For loans up to Rs.7.5 lakhs —up to 10 years

For loans above Rs.7.5 lakhs — up to 15 years

Life Insurance policy on the students availing Educational Loan is to be solicited for the loan limit sanctioned, covering the entire period of loan i.e. Study Period, Holiday / Moratorium Period and Repayment Period with the consent of the student applicant. The premium payable on the policy may be considered as eligible amount for finance.

No processing/upfront charges are to be collected on educational loans for studies in India.

a. Sanction of loan to more than one child from the same family

  • Existence of an earlier education loan to the brother(s) and/or sister(s) will not affect the eligibility of another meritorious student from the same family for obtaining education loan as per this scheme from the bank. Bank might release further installments only after obtaining the previous year’s performance certificate
  • Tuition fees/examination fee etc will be directly remitted to the institution. Payment towards the cost of books and equipments may be made in cash subject to the production of cash receipt.

Top up loans may be considered to students pursuing further studies within the overall eligibility limit, if such further studies are commenced during the moratorium period of first loan subject to ensuring repayment capacity and taking required security as per scheme norms. The repayment of the loan will commence after the completion of the second course and further moratorium period, as provided under the scheme.

The joint borrower should normally be parent(s)/ guardian of the student borrower.
No Due Certificate: No Due Certificate will not be insisted upon as a pre-condition for considering educational loan.

a. Proof for residence: Copies of Ration card or Voters Identity card or Passport or Electricity or Telephone bill or any such document acceptable to the bank.
b. Academic Record: Copy of the 10th STD / 12th STD mark list for under graduates, Degree mark list / provisional certificate for post graduates for both studies in India and abroad.

  • Date of birth / age -SSLC / TC / Mark List
  • Community- Community Certificate
  • Family income — (India & Abroad) Salary
    Certificate / Pension Certificate / Auditor’s certificate in case of business category / IT return filed / any other proof for the income stated.
  • Admission – Admission letter / Bona fide student certificate from the College / University
  • Fee Structure -Letter / Certificate from the College / University
  • For Abroad-Certificate / I 20 from the College / University Passport / VISA Copies to be enclosed.
  • Details of asset & liabilities of Guarantor/Co-obligation -Parent’s /Guardian’s/Student’s
  • Details of additional security, wherever required -LIC Policy / Share certificates / Units of UTI etc.
  • In case of land/buildings, document details for taking Valuation certificate from Bank’s approved panel valuer and legal opinion from Bank’s panel advocate
  • Declaration / affidavit stating that no Educational Loan is availed from any other bank by the applicant and his parent.
  • An undertaking letter from the parent to remit the loan installments and / or irrevocable letter of authority by the parent to his / her employer to deduct the loan from their salary.

 

Loan applications have to be disposed of in the normal course within a period of 15 days to month.

Since the above scheme is not directly applicable for vocational courses, IBA has come out with separate scheme with lesser amount depending on the period of studies for vocational courses.

IBA scheme is generally for meritorious students. Those who secure admission under management quota can also approach banks as every bank has separate scheme for such students. Generally non IBA education loan will be stricter in terms of security and margin.

There is always a risk the student may not get a job immediately after completing the course. There is also the risk that even if he or she gets a job, will not be having sufficient salary to repay the EMIs. So, parents have to be prepared for such a scenario. If you are a defaulter in education loan, then your name will appear in the defaulters’ list of Credit Rating Agencies like CIBIL/EXPERIAN preventing all further loans in future. In the present scenario without loans you may find it hard to buy a vehicle, construct a house, etc. So it is high time that parents and students contemplate on the prospects of the course and take judicious decisions after proper career guidance to their wards instead of rushing into educational loans.